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NZX50 drops 1% as North Korean tension escalates, local uncertainty rises

Friday 11th August 2017

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The New Zealand benchmark stock index dropped 1 percent this morning as fear about nuclear tensions between North Korea and the United States dragged global equities down.

An hour after trading opened this morning, the S&P/NZX50 index was down 79.2 points, or 1 percent, to 7,710.51. Some 40 of the stocks in the index had fallen, with seven unchanged and just three up. 

Equities slid overnight as tension continued to escalate, with US President Donald Trump threatening that if the North Korean regime “does anything” to the US or a US ally “things will happen to them like they never thought possible", after Pyongyang announced its plan to fire four missiles near the US territory of Guam. 

The S&P 500 Index closed 1.5 percent lower, the Nasdaq Composite dropped 2.1 percent and the Dow Jones Composite fell 1.4 percent. Wall Street's fear gauge—the CBOE Volatility Index or the VIX—jumped 44 percent to 16.04, the highest it has been since Trump was elected on Nov. 8 last year.

Grant Williamson, director at Hamilton Hindin Greene, said today's selling was based on the offshore leads, but is also an excuse for investors to take some profits from the local market which has been hitting record highs.

"The sharemarket hates uncertainty, but the market has done so well that any little upset it's quite easy for investors to sell down," Williamson said. "It's not healthy if the market doesn't have a correction every now and again."

The local index is still up 13.2 percent for the year. Mid-year reporting season is set to begin in earnest next week which could sway the direction, though continued offshore scaremongering would create more uncertainty, Williamson said.

"We should also consider the upcoming election, which is now looking to be a very tight race. I don't think anyone is going to know the result until it's all over, it has really turned around, and that does cause uncertainty," Williamson said.

(BusinessDesk)

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